Spain: Changes introduced by Law 11/2021 with respect to foreign companies: tax representatives and responsible persons

What was the situation so far with regard to the obligation of foreign companies to appoint a tax representative in Spain?

Until now, foreign companies operating in Spain through a permanent establishment were obliged to appoint a tax representative resident in Spanish territory for the purposes of Non-Resident Income Tax (NRIT). The representative assumed joint and several liability for the tax debts of the non-resident company. This rule meant that many foreign companies decided to establish themselves in Spain by setting up a subsidiary rather than a branch. Indeed, it was very difficult to find someone willing to assume joint and several liability arising from representation, and the conditions required by the representative were in any case onerous (usually the provision of a bank guarantee on first demand).

What changes does Law 11/2021 introduce with regard to the obligation to appoint a tax representative?

Law 11/2021, of 9 July, on measures to prevent and combat tax fraud, which came into force on 11th July 2021, has removed this obligation for companies resident in the European Union or in a European Economic Area country with which mutual assistance regulations exist. From now on, these companies will be able to operate in Spain through a permanent establishment without the need to appoint a tax representative, so that they will act before the Tax Administration like the companies resident in Spain, i.e. through their legal or voluntary representatives (whether or not they are resident in Spanish territory). Undoubtedly, this rule facilitates the establishment in Spain of foreign companies when, due to the circumstances, it is not convenient to set up a subsidiary.

What specialities apply to non-EU/EEA companies?

On the other hand, residents of third countries (which do not belong to the European Union or which, being part of the European Economic Area, do not have mutual assistance regulations in force with Spain) must appoint a tax representative resident in Spain in any of the following cases:

• when they act through a permanent establishment;
• when they carry out economic activities in Spain without a permanent establishment;
• when so required by the Tax Administration in view of the amount and characteristics of the income obtained or the ownership of a property in Spain (a new circumstance introduced by Law 11/2021); or
• when they reside in a country or territory with which there is no effective exchange of tax information and are the owners of assets located in Spanish territory (except for listed securities).

However, only in the first of these cases (acting through a permanent establishment) does the representative’s joint and several liability arise.

A pending task: the scope of the tax representative’s liability

Law 11/2021 has missed the opportunity to specify the scope of the representative’s joint and several liability, a much-discussed issue of enormous practical relevance, since the guarantee required by the appointed representative will depend on it. Despite being provided for in the NRIT Law, the rule extends liability to “tax debts” without exception, and the truth is that the majority interpretation of the Tax Administration is that it covers not only the NRIT debt, but also VAT and withholding taxes, among others.

Autor: Carlos Fernández